Southwest Airline Case Study

Southwest Airline Case Study

Profitably and factors underlying success:

Before the inception of Southwest Airlines (SA) in 1967, a majority of the airline industry was comprised of full service companies geared to getting passenger from any “point A to any point B” in a large number of destinations.  To reach these destination and service connecting flights, these companies incurred higher cost from employing a hub-and-spoke system at major airports, as well as additional cost from maintaining a fleet of several different models of airplanes.  In addition, these full service airlines offered first/business class services, check-in and transfer baggage service for passengers with connecting flights and offered meals to those who traveled for many hours.  

However, SA executives identified a different market for short haul, point to point service between midsized cities and secondary airports in large cities.  Their strategy guided them to tailor their activities to deliver low cost and convenient service to their customers (needs based positioning).  By offering point to point service, SA was able to achieve higher levels of on-time service and frequent departures, which were valued by its fliers.  Additionally, SA did not offer meals, assigned seats, connecting flight baggage check-ins, or any premium classes of service, which reduced many cost for the company.  Their fleet of aircrafts consisted of only 737 (purchased below list price due to contract negotiations), which allowed the company to standardized maintenance procedures to boost efficiency and minimize turnaround time for getting an airplane ready for flight.  By having a lower turnaround time, believed to be 30 mins faster than the industry average at one point, SA was able to keep their planes flying longer, with more flight departures than their competitors, leading to more revenue.  SA also saved money through its ticketing process by paying less commission (saved ~$30+ million per year) and eventually coming up with a ticket less travel program.  

With this model, SA was able to offer airfare that was often 70% below its competitors.  Due to the strategy, SA was profitable for 30 consecutive years and became the only airline to be ranked “first in on-time performance, lowest lost baggage and highest customer satisfaction for the same feat five years in a row.”  As a result of Southwest Airlines (SA) strategic positioning of serving price and convenience sensitive travelers, the company has continued to remain profitable relative to other competitors in the airline industry.  Their positioning allowed them to attract the price sensitive customers who would have traveled by car or bus and capture the convenience travelers who had no other choices but to choose a full service airline company.  By concentrating on their model and competing in one market, SA supplied ~90% of all the available seats in the low-fare market segment at one point.